Economic prospects of the power-plant industry development in Russia

Our paper analyzes economic prospects and development of power engineering enterprises in Russian Federation. We show that despite the growth in use of renewable energy sources, the increase of organic fuel consumption is observed, and this is one of the key factors of traditional manufacturing effi ciency improvement related to energy conversion in the power-plant industry in Russia. Cost forecast for mastering the manufacture of advanced generation equipment by Russian enterprises can yield the price competitiveness of the given type of products. Our results demonstrate that the increase in the share of expenses for research and development by means of mobilization of resources from generation enterprises might result in the considerable technological potential for Russian power-plant industry. We conclude that Russian power industry can achieve a dominant position at the domestic and global markets of power generation technologies provided new resources are secured for its development.


INTRODUCTION
In economic literature, any given national economy is defi ned by a set of industries, each of which is under control of relevant authorities (typically represented by ministries or other institutions) (Delgado et al., 2016).Hence, it seems crucial to design strategies in diff erent sectors of national economy from the perspective of future generations in order to realize sustainable development concept on the national basis.
Power industry is the key sector of national economy providing its sustainable growth (Białowąs, 2015;Streimikiene et al., 2016).National security of energy supply is determined by the level of effi ciency and operational reliability in power industry.Priority rates of energy sector development are expected in comparison with other sectors of economy due to necessity for meeting constantly growing requirements of economy in electric power.
In spite of the recent shift towards generation and use of renewable energy sources (RES), the increase of organic fuel consumption remains the main pillar of energy generation in Russian Federation (as well in many other countries around the globe), and a factor that still remains one of the key ones for traditional manufacturing effi ciency improvement related to energy conversion in power-plant industry in the country.In order to assess the economic potentials as well as to draw scenarios of future development for the powerplant industry in Russia, cost forecast methods seem to provide appropriate tools.Cost forecast methods can be used for mastering the manufacture of advanced generation equipment by Russian enterprises and for eliciting the price competitiveness of the given types of products or services they provide.It often happens that the increase in the share of expenses for research and development (R&D) sector obtained from shifting the necessary resources from generation enterprises might result in considerable enhancement of technological potential of the power-plant industry.
Th e postulates and objectives articulated above constitute the main idea and the key value-added of this paper.Th e paper sets a goal to provide recommendations for Russian power industry in order to help it achieve a dominant position at the domestic and global power generation markets and to become truly competitive and self-sustainable.
Th is paper is structured as follows: Section 2 provides a comprehensive literature review.Section 3 elaborates on the state of the power-plant industry in Russia.Section 4 provides a methodology of the cost forecasting methods.Section 5 reports on the empirical model of cost forecasting and its main results.Finally, section 6 concludes the paper with some remarks and discussions.

LITERATURE REVIEW
Evaluation of world data on construction of all kinds of generating facilities allows for the conclusion about considerable energy consumption growth over the last 30 years (Figure 1).Despite the achieved capacity gain of alternative and renewable energy sources over the past decade, the increase of typical fuel and energy resources (oil, gas, coal) consumption is observed, and traditional thermal power industry based on chemical transformation of organic fuel still dominates (Urbaniec, 2015).
Th ermal power plant (TPP) is a generating unit in traditional power industry.Active use of organic fuel at TPP plant in order to satisfy demand for electric power along with resource limitation is among the key factors of energy conversion technological development.
Global power-plant industry development is focused on amplifi cation of initial steam parameterspressure p 0 and temperature t 0 .From thermodynamic perspective it is the only possible way to improve considerably the effi ciency of power plant turbo generator.Th us, t o increase by 1% results in upgrading TPP plant effi ciency by an average of 0.13%, and p 0 increase -by 0.0086% (Lisin et al., 2015a;Breeze, 2014).However, steam temperature increase is limited by physical properties of modern steel.At present time, the ultimate temperature level for steel is 600 -620 0 С (Masuyama, 2001).Steam initial temperature increase results in effi ciency improvement of a generating unit, and escalation of capital costs as well.Escalation of capital costs is caused by necessity for extensive use of high-priced heat-resistant steel within metal costs of power-generating equipment (Breeze, 2014;Zhang, 2013).From the perspective of economic feasibility of high-effi cient electric power generation technologies, unit power improvement shall be observed.
Table 1 lists the key technical and economic parameters of power generation technologies based on solid fuel with diff erent effi ciency levels.Source: own research based on (Sargent & Lundy, 2009;Bechtel Power Corporation, 1981;Zhang, 2013).
Development and assimilation of innovative high performance power generation technologies require considerable investments associated with competitiveness of power engineering enterprises in the country.Competition between Russian enterprises and foreign manufactures of power-generating equipment is peculiar to power-plant industry in Russia.Poor international credit rating of Russian enterprises diminishes a chance of favorable fi nancial terms to be off ered by commercial banks.In this regard, production prime cost of Russian power engineering enterprises is higher compared to foreign counterparts (Frolova, 2014).Th is fact predetermines dependence on foreign technologies in power-generating sector of the country.

CURRENT STATUS OF POWERPLANT INDUSTRY IN RUSSIA
Russian power engineering enterprises produce the main and accessory equipment for TPP, nuclear, hydraulic and gas-turbine power plants.
Although Russian power engineering enterprises have come out of recession caused by structural changes of industry in the early 1990s (Hill, 1998), they hold weak positions in the domestic market after quarter of a century being engaged primarily in the export of energy products.
First of all, this is due to the fact that global companies built their business in Russia while the majority of industry enterprises were at a low ebb.Such global producers of power equipment as Siemens, Alstom, General Electric, almost completely hold the market of power-generating equipment, and supply their products for power plant construction and alteration.Under these conditions, the Russian power-plant industry is associated with auxiliary production (Mityushin et al., 2008;Mikhailov et al., 2012).
Lack of suffi cient funds available for investment in modernization of manufacturing equipment and improvement of product quality, as well as breach of time-honoured relations with partners, are also among the key reasons of the current situation for Russian enterprises.Nevertheless, demand for power equipment from Russian generating companies remains suffi ciently high, considering that about 43% of all generating capacities in Russia reached the end of their service life (Rezinskikh, 2010).
At the same time, an intense expansion of foreign power-plant enterprises is observed by uniting of global producers in consortiums.Th is is due to the fact that Russian producers appear to be non-competitive in view of high manufacturing costs and they are not ready to perform turnkey services (Salnikov, 2006).
Along with that, the Russian power-plant industry preserved substantial potential for sustainable innovative and technological development.Fluctuations in the load of Russian power engineering enterprises do not allow to accelerate modernization just at their own expenses.As a result, maximum share of costs for research and development is equal to 5% of cumulative investment.In the meantime, research and development are equally conducted by diff erent foreign enterprises, and at times even with predominant co-funding from future product consumers -the largest generating companies (Mikhailov et al., 2012;Rodionov et al., 2014).
More than 50 enterprises are involved in power-plant industry of Russia.Industrial group JSC "Siloviye Mashiny" and JSC "Atomenergomash" hold the key positions.From the perspective of competitiveness on the foreign markets, only industrial group JSC "Siloviye Mashiny" provides complete cycle from development to production and maintenance of power-generating equipment at all electric power plants.Other companies focus on particular products (Danilin, 2010).
Th e following activities represented in Table 2 can be distinguished in the structure of Russian powerplant industry.
Table 2 Key producers of power-generating equipment
Th e largest producer in the global market of power plant engineering is General Electric, controlling 29% of the whole market, Siemens ranks second with 19%, and the next is Alstom -16%.Th e market share of all Russian power engineering enterprises is no more than 2% , and 1.5% is accounted for by JSC "Siloviye Mashiny" (Danilin, 2010).
Currently, the pursuance of research and development and application of their results in manufacturing are among the key problems of Russian power plant engineering enterprises.Research and development are expensive, and Russian energy companies are either not suffi ciently interested, or they cannot conduct R & D considering lack of positive experience in cost management during new power equipment manufacturing.In this regard, production of Russian enterprises is either technologically imperfect, or designed according to foreign technologies using imported parts.Poor development of scientifi c and engineering solutions in production chain cuts down renewal and growth opportunities.
Almost all production of Russian power engineering enterprises is sector-specifi c and characterized by small demand for output product.Year after year, intense foreign competition is observed, and innovation rate of Russian engineering business remains low.
At present time, modernization of equipment and assimilation of new manufacturing technologies may enhance competitiveness of the Russian power engineering enterprises and provide security of energy supply in the country.At achieving these purposes under current economic conditions, it is necessary to manage costs of new power equipment manufacturing.Cost forecast for new power equipment during research and development stage is of prime importance.Th is could allow for attracting investments in power engineering sector from generating companies at early stage of scientifi c product development, as well as promoting advanced development and upgrading experimental and computing bases of power engineering enterprises.

METHODOLOGY
A principal issue of power-plant industry under current market conditions is reaching the desired effi ciency level at power equipment manufacturing.To solve the given problem, an enterprise should quickly change production object modifying structural form and dimensions, product characteristics, materials and manufacturing technology.Th is allows to maintain steady demand for output product.During engineering study it is necessary to forecast launching costs.
At forecasting costs of new power equipment, the following factors must be considered (Rubin et al., 2007;Lisin et al., 2015b): -High cost and turnaround time, -High capital/output ratio, -Long payback period of investment projects, -Slow technological changes, -Quite small production batch.
All private forecast objects are interconnected in power industry and set a unifi ed complex of prediction of scientifi c and technical processes.Th e main predicted parameters in power-plant industry are: (Colpier et al., 2002;Lisin et al., 2015a) -Launching costs; -Technical parameters (pressure, temperature); -Technical resources and life time; -Design characteristics; -Assimilation of new metals; -Changes in power engineering technologies.Currently, diff erent methods of cost forecasting are used due to continuing theoretic development related to variable economic conditions and increasing the capabilities of researchers.
Conceptual design outputs allow for total cost assessment based on analogue method (Makridakis et al., 1998).At forecasting costs of new power equipment, analogue method can be used by selecting the prototype as a basic version that is structurally similar to a new processing unit and having similar technicaleconomic values (Kehlhofer et al., 2009).So we get the following formula: where i k -coeffi cients taking into account cost increase (reduction) due to change of design and parameters of a new equipment; base eq C -cost of equipment taken as a basic version for calculation.Analogue method is not perfect and has disadvantages.Th e case is that technological changes are less associated with past experience under dynamic market conditions and new developments.Th us, application of the given method provides less accurate results.
Correlation and regression analysis methods are also used during new equipment cost calculation.Th ese statistical methods are intended to determine relationship between technical and economic parameters and production prime cost.
For instance, in order to estimate the manufacturing cost of new steam turbines the following parameters of a correlative model can be used: -Nominal capacity; -Initial pressure and steam temperature; -Turbine net mass.
Correlation and regression models of prime cost defi nition based on power equipment parameters can be used at early stage of new equipment design.However, these models have disadvantages when used in respect of machine engineering.Th e most serious among them are: -Disregard of structural complexity and novelty; -Removal of physical output indicators from analysis, aff ecting the prime cost by the way of fl uctuating charges; -Disregard of suitability, continuation and specialization of existing production at manufacturing power equipment of standard size.Th us, correlation analysis method is of limited application even at early stage of design process.
During technical and economic forecasting, dependence of new equipment production effi ciency on variable and fi xed costs ratio is of great importance considering predominant single-unit production in power-plant industry.
Prime cost structure of new power equipment through the example of a new steam turbine production can be presented by formula:  3 gives the suggested cost-per-unit structure in power-plant industry.Other production and non-production expenses 2.1 Source: own research based on (Lisin, E et al., 2015b;Kehlhofer et al., 2009).
Having combined last four components (2) into total fi xed cost summary, we get the following formula: Graphical description of the given functional dependence is shown in Figure 2. As it appears from the presented prime cost structure of new power equipment manufacturing, the majority of costs are expended on materials by power engineering enterprises.

EMPIRICAL MODEL OF COST FORECASTING
Technological development of generation equipment is oriented to installed unit capacity growth.Th is allows for effi ciency improvement and operating costs reduction.From the perspective of production prime cost, on the one hand, change in manufacturing process results in reduction of metal consumption per unit capacity, on the other hand, turbo generator mass increases and it is necessary to use pricier heat-resistant steel.Assessment of the impact of the used metal amount on prime cost of a new power unit with its installed capacity growth will allow to make cost forecast for new power equipment.
Enormous amount of metal is consumed during production of turbine and boiler units.For instance, the mass of К-300-240 steam turbine with a capacity of 300 MW is 700 tonnes, and the mass of К-800-240 steam turbine with a capacity of 800 MW is 1300 tonnes.In this case, metal consumption during turbine production is almost twice the mass of manufactured power unit.
High-strength heat and pressure resistant metals are used in steam turbine manufacturing.Rise of steam parameters and installed unit capacity results in high-alloy steel consumption increase.
Providing high heat resistance of steel by using doping materials including molybdenum, wolframium, nickel, vanadium and cobalt is among the key factors constraining the use of extra-high, supercritical and ultra supercritical steam parameters.Th ese materials are very expensive.Currently high-priced titanium is coming into use at steam turbines with supercritical parameters.
Metal utilization factor  increase is of great importance for power-plant industry.Metal utilization factor is quite low in steam turbine manufacturing.Disparity between semi-fi nished and fi nal product mass (net weight) is observed.
Considering the structure presented in Figure 3, we get calculation formula for weighted average cost of metal: cast iron steel forgings 0.04 0.19 0.11 0.42 Information on net mass and consumption of steel at manufacturing a number of steam turbines is given in Table 4. Table 4 Mass and consumption of steel at steam turbine manufacturing (without condenser) Source: own development based on (Leyzerovich, 2008).
Based on data presented in Table 5 we compose regression model refl ecting turbine specifi c mass m change depending on installed capacity N .Th is dependence is nonlinear and described by the following statistical evidence: where 1 2 3 , , a a a -regression coeffi cients.Th en we make change of variables . We use least square method to determine regression coeffi cients.We shall solve the following combined equations: where n -number of experimental power units.
We receive the following model of assessment of specifi c mass depending on installed capacity: Th en cost of materials required for a new steam turbine manufacturing shall be defi ned as follows: Power unit technical level increase contributes to installed capacity growth.In such case, power unit specifi c mass per unit capacity reduces and metal specifi c cost per unit mass increases due to share growth of expensive heat-resistant steel.
Being aware of share of material costs at new product manufacturing (Figure 3) we obtain the cost forecast for new power equipment with its installed capacity growth (Figure 4).It should be noted that, that metal cost determination for generation equipment requires more detailed consideration and possibly special model construction as the cost of power unit single parts varies enormously depending on application and location.

CONCLUSIONS
Power industry is the key sector ensuring a sustainable development of national economy.National security of energy supply is determined by the level of effi ciency and reliability in power industry.Priority rates of energy sector development are expected in comparison with other sectors of economy due to necessity of meeting constantly growing requirements of economy in electric power.
Evaluation of world data on construction of all kinds of generating facilities allows for the conclusion that despite the achieved capacity gain of alternative and renewable energy sources over the past decade, the increase of typical fuel and energy resources (oil, gas, coal) consumption is observed, and traditional thermal power industry based on chemical transformation of organic fuel still dominates.Active use of organic fuel to satisfy demand for electric power along with resource limitation is among the key factors of energy conversion technological development.
Global power-plant industry development is focused on amplifi cation of initial steam parameters, such as temperature and pressure.However, steam parameter increase is limited by physical properties of modern steel, and thus, by development level of iron and steel enterprises.Increase of initial steam parameters results in effi ciency improvement of a generating unit, and escalation of capital costs as well.From the perspective of economic feasibility of high-effi cient electric power generation technologies, unit power improvement shall be observed.
Russian power engineering enterprises produce the main and accessory equipment for TPP, nuclear, hydraulic and gas-turbine power plants.However, they hold quite weak positions in the domestic market.Th is is due to structural changes of industry in the early 1990s when world producers of power equipment built their business in Russian market.Such global companies as Siemens, Alstom, General Electric, almost completely hold the market of power-generating equipment, and supply their products for power plant construction and alteration.Under these conditions, the Russian power-plant industry is associated with auxiliary production.
Lack of suffi cient funds available for investment in modernization of manufacturing equipment and improvement of product quality, as well as breach of time-honoured relations with partners, are also among the key reasons of the current situation for Russian enterprises.Nevertheless, demand for power equipment from Russian generating companies remains suffi ciently high.
At present time, modernization of equipment and assimilation of new manufacturing technologies may enhance competitiveness of the Russian power engineering enterprises and provide security of energy supply in the country.At achieving these purposes under current economic conditions, it is necessary to manage costs of new power equipment manufacturing.Cost forecast for new power equipment during research and development stage is of prime importance.Th is could allow for attracting investments in power engineering sector from generating companies at early stages.
During technical and economic forecasting, dependence of new equipment production effi ciency on variable and fi xed costs ratio is of great importance considering predominant single-unit production in power-plant industry.As it appears from the presented prime cost structure of new power equipment manufacturing, the majority of costs are expended on materials by power engineering enterprises.
On the other hand, manufacturing process improvement results in reduction of metal consumption per unit capacity, on the other hand, turbo generator mass increases and it is necessary to use pricier heatresistant steel.Statistical assessment of the impact of a power unit capacity on the used metal amount is exaggerated.
Cost forecast for mastering the manufacture of advanced generation equipment (through the example of steam turbines) by Russian enterprises proved the price competitiveness of the given type of products.Increasing the share of expenses for research and development by means of mobilization of resources from generation enterprises, the Russian power-plant industry can realize considerable technological potential and achieve dominant positions in the domestic and global markets of power generation technologies.

Figure 1 .
Figure 1.Plant capacity global change according to types of energy sources Source: U.S. own research based on (International Energy Statistics, 2016).

Figure 2 .
Figure 2. Prime cost structure of new power equipment and aff ecting factors Source: own development.

Figure 4 .
Figure 4. Generation equipment cost forecast with installed capacity growthSource: own research.

Table 3
Suggested new production prime cost structure in power-plant industry

Table 5
Steam turbine technical level parameters